Staffing agency's per diem payments lead to premium assessment

In California, in order for a per diem payment to be exempt from payroll calculations for a workers' compensation insurance premium, an employer must have records showing that a worker worked at a job location that would have required the worker to incur additional expenses not normally assumed by the worker.

Case name: Readylink Healthcare, Inc. v. Jones, No. B234509 (Cal. Ct. App. 11/06/12).

Ruling: The California Court of Appeal upheld a workers' compensation insurance premium assessment on a health care staffing agency based on the per diem payments it made to nurses.

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What it means: In California, in order for a per diem payment to be exempt from payroll calculations for a workers' compensation insurance premium, an employer must have records showing that a worker worked at a job location that would have required the worker to incur additional expenses not normally assumed by the worker.

Summary: A health care staffing agency provided temporary traveling nursing personnel to hospitals and other acute care centers. The State Compensation Insurance Fund issued the agency a workers' compensation policy. A fund auditor discovered that the agency was paying nurses a minimum wage and a much higher stipulated per diem amount. When questioned about the per diem payments, the agency stated that it was audited by the Internal Revenue Service, which found that the agency was in compliance with federal per diem tax rules.

The agency did not provide the fund with documentation of its per diem payments. The fund determined that the agency's per diem payments to traveling nurses counted as payroll. The insurance commissioner upheld the assessment. The California Court of Appeal also upheld the premium assessment.

The agency argued that the commissioner effectively revised or amended the subsistence payment rule. The court disagreed, characterizing the agency's argument as an attempt to "escape the consequences of its intentional misreporting of payroll." The regulations state that in order to be exempt from payroll calculation, a per diem payment must be "reasonable and the employer's records show that the employee worked at a job location that would have required the employee to incur additional expenses not normally assumed by the employee." While the agency's competitors made per diem payments only available to employees who worked more than 50 miles from their home, the agency did not know whether their nurses were using per diem payments to offset duplicative living expenses. The agency also failed to provide documentation verifying its per diem payments.

The court also explained that the fact that an IRS auditor or prior fund auditor did not discover that the agency's per diem payments could not be substantiated was not evidence that its practices were correct.

Read more at the WorkersComp Forum homepage.

February 4, 2013

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